2015 (8) TMI 1269 - AT - Income Tax

Disallowance u/s 14A - Held that - We direct the ld. Assessing Officer to follow the aforesaid order of the Tribunal holding that 1% of the exempt income will be reasonable disallowance on account of administrative expenses u/s 14A of the Act. Disallowance u/s 36(1)(viii) - Held that - Under the existing provisions of the Act, the deduction is allowable to a financial corporation which is engaged in specific activities viz., providing long term fianc for industrial or agricultural development or development of infrastructure facility etc.,. The term financial corporation was defined in an inclusive manner so as to include a Government Company and a Public Company. By very nature of this definition being an inclusive definition and not an exhaustive definition, an entity incorporated under a statute carrying on the business of financing would come under the definition of financial corporation . It shall not be presumed that only Govt. company and Public company are entitled for above deduction. Any financial corporation which is engaged in the activities specified in the said section are entitled to claim deduction specified in the said section. Decided in favour of the assessee. Valuation loss in respect of permanent investments allowed in favour of assessee Depreciation claim on the lease asset - Held that - There is uncontroverted finding that for A.Y. 2002-03 and 2003-04, this issue was decided in favour of the assessee and the same has been accepted by the Department. Identically, for A.Y. 2004-05 and 2005-06, there was no change in facts, therefore, it was decided in favour of the assessee.

Issues Involved:
1. Disallowance of expenditure under Section 14A of the Income Tax Act, 1961.
2. Treatment of lease premium as capital expenditure.
3. Deduction under Section 36(1)(vii) of the Income Tax Act.
4. Initiation of penalty proceedings under Section 271(1)(c).
5. Applicability of provisions of Section 115JB.
6. Disallowance of bad debts not written off in the books.
7. Deduction of diminution in value of investments as business loss.
8. Nature of lease rentals and depreciation on lease assets.

Detailed Analysis:

1. Disallowance of Expenditure Under Section 14A:
The assessee contested the disallowance of Rs. 19,16,63,276/- related to exempt income (dividends and interest on tax-free bonds) under Section 14A. The Tribunal referenced a previous decision (ITA No.1498/Mum/2011) where disallowance was limited to 1% of exempt income. The Tribunal directed the Assessing Officer to follow this precedent, confirming that 1% of exempt income is a reasonable disallowance for administrative expenses under Section 14A.

2. Treatment of Lease Premium as Capital Expenditure:
The assessee challenged the disallowance of Rs. 2,31,62,114/- as capital expenditure for lease premiums. The Tribunal noted that this issue had been previously decided against the assessee in another case (ITA No.2781/Mum/2011) and followed the decision of the Special Bench in JCIT vs Mukund Ltd., thereby sustaining the disallowance.

3. Deduction Under Section 36(1)(vii):
The assessee claimed a deduction of Rs. 45,00,00,000/- under Section 36(1)(vii). The Tribunal cited favorable decisions from the jurisdictional High Court and previous Tribunal decisions, confirming that the deduction for bad debts written off is allowable. The Tribunal directed the Assessing Officer to follow these precedents.

4. Initiation of Penalty Proceedings Under Section 271(1)(c):
The assessee withdrew the ground related to the initiation of penalty proceedings under Section 271(1)(c), and the Tribunal dismissed this ground as withdrawn.

5. Applicability of Provisions of Section 115JB:
The Tribunal addressed the applicability of Section 115JB to banks, noting that previous decisions (including ITA No.1498/Mum/2011) had exempted banks from these provisions. The Tribunal directed the Assessing Officer to follow these decisions, confirming that Section 115JB does not apply to banks for the assessment year under consideration.

6. Disallowance of Bad Debts Not Written Off in the Books:
The Revenue's appeal against the allowance of bad debts amounting to Rs. 4,08,13,000/- was discussed. The Tribunal referenced previous decisions (including ITA No.1498/Mum/2011 and ITA No.3534/Mum/2011) that supported the allowance of bad debts written off in the books, following the Supreme Court's ruling in TRF Ltd. vs CIT. The Tribunal upheld the allowance of the bad debts.

7. Deduction of Diminution in Value of Investments as Business Loss:
The Revenue contested the deduction of Rs. 394,23,59,023/- as business loss, arguing it represented a capital loss. The Tribunal cited favorable decisions from the Supreme Court and the jurisdictional High Court, confirming that such diminution in value is deductible as a business loss. The Tribunal upheld the deduction.

8. Nature of Lease Rentals and Depreciation on Lease Assets:
The Revenue challenged the depreciation claim of Rs. 2,83,10,336/- on lease assets, arguing it was a financial transaction. The Tribunal noted that similar claims had been accepted in previous years without appeal from the Department. The Tribunal upheld the depreciation claim, affirming the assessee's ownership of the assets and consistency in treatment.

Conclusion:
The Tribunal partly allowed the assessee's appeal and dismissed the Revenue's appeal, providing specific directions to the Assessing Officer to follow established precedents in each issue.

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